The COVID-19 pandemic is having far reaching effects on nearly every aspect of the global economy. Here in the United States, one of the more hard hit sectors are small businesses.
Small businesses are particularly susceptible because they don’t have the large corporate backing that can often help weather any temporary financial storm. And as many small businesses are not deemed “essential” based on the variety of state shelter-in-place orders that have been established, they’ve been forced to furlough or lay off employees so they can keep the lights on. It’s estimated that the average small business has less than a month’s worth of cash buffer on hand.
So, what can small businesses do now to ensure they remain solvent when the economy is back ready to open? Here’s a look:
Apply for PPP Loans
The first thing small business owners should do is apply for a loan via the Paycheck Protection Plan (PPP). Eligible for businesses with less than 500 workers, these loans – made possible by the recent passage of the $2.2 trillion CARES Act – will forgive funds used for payroll, mortgage and other essentials over eight weeks. Bottom line: PPP loans can help you buy time. At the time of this writing, more than $210 billion worth of PPP loans had already been approved. You may also want to explore the Economic Injury Disaster Loan, another hardship program offered by the Small Business Administration.
Modify Signature Approvals
In times like this, you can’t afford to spend money on something that isn’t essential. It’s why we recommend modifying your company’s signature approval process so that only you – the owner – has authority. It can prevent unnecessary spending.
Renegotiate Contracts:
While it’s never fun contacting your vendors to renegotiate vendor contracts, keep in mind that your vendors won’t want to lose your business should you have to permanently shutter your doors. It’s why we suggest contacting them in tough times to see if you can temporarily rework certain things until business returns to normal. If reduced payments aren’t feasible, perhaps extending the contract term is.
Collect Outstanding Payments:
Take stock of partners or customers that owe you money and try to collect it. If you’re a business that doesn’t invoice until work is completed, bill your customer for what you’ve accomplished thus far. Remember, your goal is to stay solvent. While these conversations may be uncomfortable, they also may be necessary.
Reduce Staff:
As unfortunate as it is to let staff go, it might be a necessity right now – especially if only a fraction of your business is operating. If you can, try to furlough employees so they’ll at least have the peace of mind they’ll be returning to a job when the dust settles. Furloughed employees are also eligible for unemployment benefits. With the employees you do retain, consider working longer hours to try to be as productive as possible.
